Dow Rebounds as Europe Falters

A continental divide separated stock investors in Europe and the U.S. on Tuesday.

Across the Atlantic, stock markets tumbled as elections in Italy threatened to spark new political turmoil in the region.

Home Depot led shares higher a day after the year's largest drop, as Fed Chairman Ben Bernanke signaled stimulus policies would continue. Alexandra Scaggs reports on The News Hub. Photo: AP.

In the U.S., the Dow Jones Industrial Average had one of its best days this year. Having staged a selloff on Monday in response to Europe's troubles, investors were more focused on prospects for continued stimulus by the Federal Reserve on Tuesday.

"Europe simply couldn't muster any strength because of their political issues," said Bruce McCain, chief investment strategist at Key Private Bank.

Much of the reason for the diverging fortunes was timing. Italy's election results on Monday appeared to be coming in as planned, and investors had anticipated the victory of parties that would continue with austerity measures designed to help Italy cut its debt load. But as European markets were closing Monday, the polls turned, and by Tuesday morning the result was inconclusive, raising the prospect of a second vote in coming weeks and more turmoil for financial markets.

Italy's FTSE MIB index slumped 4.9% and the Stoxx Europe 600 fell 1.3%. The selloff extended to bond markets, where investors dumped Italian and Spanish government bonds, sending yields higher, and fled to the relative safety of German and French government debt.

In the U.S., the Dow had time Monday to react to the election news and lost 216 points. By Tuesday, investors were focused on remarks from Fed Chairman Ben Bernanke, who strove in testimony before Congress to assure that the central bank's monetary-easing measures would continue.

ENLARGE

Stocks coasted higher after Mr. Bernanke made a strong case for the benefits of the Fed's easy-money policies, meant to stimulate the economy, Above, the floor of the New York Stock Exchange on Tuesday.
Associated Press

The Dow gained 115.96 points, or 0.8%, to 13900.13, while the Standard & Poor's 500-stock index rose 9.09 points, or 0.6%, to 1496.94.

"The reassurance that the Fed chairman tried to offer gave investors a pretext for kind of ignoring what's going on in Europe, but we'll see in the days ahead whether U.S. stocks will be able to steer an independent course," Mr. McCain said.

Treasury prices also rallied in response to Mr. Bernanke's comments. The yield on the 10-year Treasury note fell to 1.877%, from 1.895% on Monday, as bond yields move inversely to prices. Gold jumped $29, or 1.8%, to $1,615.20 a troy ounce, its largest one-day percentage gain since November. Gold tends to benefit from easy-monetary policies, as investors seek the metal as a hedge against the inflation that may follow the increased liquidity in the financial system.

Oil prices dropped 0.5% to settle at $92.63 a barrel. The dollar rose against the euro and yen.

Among the biggest stock market movers, Home DepotHD0.49% jumped $3.64, or 5.7%, to $67.56, to lead the Dow. Shares rose after the home-improvement retailer reported better-than-expected quarterly results, announced a stock-buyback program and raised its quarterly dividend.

"Quarterly earnings reports have been good enough, including Home Depot, to bring buyers into the market," said Alan Lancz, president of Alan B. Lancz & Associates, a money manager based in Toledo, Ohio.

Home-builder stocks were among the biggest beneficiaries of a slightly larger-than-expected rise in the S&P Case-Shiller 20-city home-prices index for December. PulteGroupPHM1.57% rose 1.03, or 5.7%, to 19.05, while D.R. HortonDHI0.75% climbed 88 cents, or 4.1%, to 22.25.

Elsewhere on the economic front, new-home sales posted the biggest jump in nearly two decades last month, reaching the highest level since mid-2008, according to the Commerce Department.

﻿M-0.39%In other corporate news, senior-home operator Assisted Living Concepts surged 2.21, or 23%, to 11.91, after agreeing to be acquired by private-equity firm TPG for roughly $277 million, following a strategic review of options.

The euro fell and European stocks tumbled Tuesday. But most concerning is the return of euro-zone contagion, as the borrowing costs of Italy and other debtors start to rise again, says Dow Jones's Katie Martin.

Macy'sM-0.39% climbed 1.07, or 2.8%, to 39.59, after posting quarterly earnings and issuing a profit forecast that topped analysts' expectations.

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